Reference no: EM132510866

Problem 1

The latest manufacturing equipment is purchased at a cost of $800,000. As a result, annual cash revenues are expected to increase by $345,000; annual cash expenses are expected to increase by $162,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $100,000. Assume the company is in the new 21% corporate tax bracket.

Question 1: Determine the accounting rate of return? (round to the nearest %)

Question 2: Determine the payback period?

Question 3: Determine the NPV assuming a minimum required rate of return of 8%?

Problem 2 (Ignore taxes for this problem)

Bullock Prosthetics is planning to buy 3-D printing machinery costing $380,000. This machinery's expected useful life is 5 years. They require a minimum rate of return of 8%, and have calculated the following data pertaining to the purchase and operation of this machinery:

Year                Estimated Annual Cash            Inflows Estimated Annual Cash                 Outflows Depreciation

1                         90,000                                           15,000                                   60,000

2                         150,000                                          45,000                                  60,000

3                            230,000                                      95,000                                   60,000

4                             270,000                                         110,000                              60,000

5                              300,000                                        125,000                            60,000

Question 4: Determine Terra's payback period, accounting rate of return, and NPV for this investment?

Problem 3

Z Company is planning to purchase a system capable of deploying Artificial Intelligence for monitoring the company's transactions for accuracy and misuse. The expected cost of this system is $165,000, and it is expected to have a useful life of 6 years and an estimated salvage value of $26,500. The system is expected to produce cash savings of $57,000 per year in reduced labor costs and the cash operating costs to run this system are estimated to be $17,000 per year. Assuming Company X is in the new 21% tax bracket and has a minimum desired rate of return of 12% on this investment.

Question 5: Determine the:

(a) payback period, (b) ARR, and (c) NPV (Ignoring taxes), and
(a) payback period, (b) ARR, and (c) NPV (Assuming taxes).